Any merger between two water companies in England and Wales is scrutinised to ensure that it does not have an impact on Ofwat’s comparative competition regime. The aim is to protect water customers from paying higher prices as a result of a merger.

The positive ruling for the merger between South Staffordshire Water and Cambridge Water breaks new ground. In addition, the Draft Water Bill proposes the reform of the water merger regime. This includes the introduction of a two-tier referral system, allowing a water company seeking to take over another water company to make undertakings to the Office of Fair Trading to compensate for the loss of a comparator. Ofwat will also be required to publish a statement of methods setting out how it values comparators. The CC’s report is likely to provide some useful guidance for this statement of methods.

Dr Luis Correia da Silva Managing Director of Oxera reported that ‘the case builds on the previous merger inquiry between South East Water and Mid Kent Water and provides further guidance on how to assess the value of a comparator in the water industry. This, along with the proposed changes in the Draft Water Bill, should provide greater clarity for those considering acquisitions in the sector.’

Ends

Notes to editor:
Oxera combines the most rigorous economic thinking and quantitative methods with a practical business approach to advise clients on matters in competition, finance and regulation. What sets Oxera apart is:

• our reputation for credibility and integrity with policy-makers, regulators and legal authorities, which is of critical value to our clients and has been created through our long-standing emphasis on quality and independence;
• our experience and unique ability to combine the fields of competition, financial, regulatory and quantitative economics, which, together with in-depth sector knowledge, provide the ingredients for respected economic advice.

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